Forex Breakout Strategy

Forex Breakout Strategy: The foreign exchange market is one of the most volatile and most liquid markets out there. If you are a forex trader, you can attest to how difficult it is to make very healthy returns in this market. This is not only because of the unpredictable nature of this market but also the so many different strategies and trading systems that make it difficult for traders to pick a reliable option.

What if you were told that there is one trading strategy that could be used by all traders no matter their experience or knowledge level and still generate respectable profits? Sounds too good to be true, right?

Well, the forex breakout strategy is one of the commonly used trading strategies that doesn’t require prior knowledge. The strategy works perfectly when the market is approaching extreme high or low and requires you to identify a key price level you expect the price to break up through, then buy or sell at that price to take advantage.

If you are a forex trader looking to leverage breakouts, this post will cover everything you need to know about the forex breakout strategy to help you improve your accuracy and profitability in trading breakouts.

What is the forex breakout strategy?

At its core, a breakout is a potential trading opportunity that occurs when the price of an asset moves outside a defined support or resistance area. It is an entry point into the foreign exchange market based on price action alone. With this strategy, traders need to keep an eye on prices, not charts, technical indicators, or other factors that trigger currency changes.

Relative to many other forex trading strategies, the breakout strategy is very simple and straightforward. When trading breakouts, you enter long positions if stock prices break through resistance levels and low positions if prices drop below support.

While the strategy sounds very simple, it could help you grow your investment. In fact, traders who use breakout strategy and stick to it tend to outperform their peers constantly. This is because most people trade-off chart patterns and trends instead of price movements. Some forex traders also combine systems and lack a plan to keep them disciplined and focused; thus, they end up overtrading.

Unlike using other trading strategies, breakouts allow you to leverage price moves without worrying about factors that might cause the prices to change. Interestingly, when the movie begins, it can last, and all you can do is watch profits roll in.

Types of forex breakout strategies

Forex trading strategies give traders insights into when and where to buy or sell currency pairs. While there is no such thing as the best trading strategy, all forex breakout strategies were not created equal. This means that some breakouts may work better than others, and some are suited for certain situations.

If you are trying to decide which breakout strategy to use, here are the top five breakout strategies to consider. Keep in mind that there are hundreds of breakout strategies out there.

Support: Support is arguably the simplest type of breakout strategy. With this strategy, all you need is to buy when prices of assets reach a certain level and sell when they fall below another level. For instance, if you wanted to open a position when a certain pair crosses 1.3500, then you hold on to enter the position when the pair hits 1.3450.

Resistance: This strategy is simple as it involves identifying where the current trend line lies. Once you determine where the line lies, you can place stop-loss orders on either side. You will go long if the prices breach the upper limit and short if the prices don’t break through the lower limit.

Breakout: With this strategy, you wait for the prices to break through a certain level and start trading immediately the trend line moves in your favor.

Trend line breaching: This type of breakout strategy involves setting two targets, then waiting for the prices to hit the targets simultaneously. Once the prices hit your preset targets, you can start trading.

Retest: As the name suggests, this strategy is all about retracement, so traders have nothing to lose. With retest, you wait until the market falls by a certain amount, then try to catch it falling again. You can make respectable profits if you succeed; otherwise, you have nothing to lose.

Foreign exchange is a highly lucrative market, and anyone with no prior skills could use breakouts to grow their investment. You should, however, note that different types of breakout strategies may require varying approaches and different levels of fundamental analysis. Forex breakout strategy mainly involves looking at current trends, then deciding where to place orders. Hopefully, you will find this post helpful when trading.